March Quarter CPI Preview
Seasonal boost from health & education with the Trimmed Mean matching the December increase.
Read full report March Quarter CPI Preview (PDF 217KB) with charts and tables.
- For the March quarter Consumer Price Index (CPI), Westpac has lifted its forecast from 0.7% to 0.8%. Due to base effects (a much larger rise in March 2023 of 1.4%) this would see the annual pace drop to 3.5%yr from 4.1%yr, the slowest pace of inflation since December 2021.
- Our forecast for the most widely referred to core measure, the Trimmed Mean, is confirmed at 0.8% for the March quarter. This would see a moderation in the annual pace from 4.2%yr to 3.8%yr, the slowest pace since March 2022.
- We expect the usual annual repricing of health and education to make a solid contribution in the quarter, with education contributing 0.25ppt and health 0.15ppt. These price reset tend to be backwards looking reflection in inflation experienced and so this year could be larger than usual but set to ease going forward as overall inflation moderates.
- Despite government rebates resulting in falling electricity prices, housing still makes a solid contribution of 0.14ppt with rents increasing 2.2% and dwellings gaining 1.1%.
- Food remains inflationary rising 1.0% in the quarter with a 0.09ppt contribution from food ex fresh fruit & vegetables and a 0.07ppt contribution from fresh fruit & vegetables.
- Providing a modest offset is falling household contents & services (-0.03ppt contribution due to falling furniture, furnishings, textiles and appliance prices) and falling clothing & footwear (-0.04ppt contribution).
- Westpac is forecasting a 0.3% increase in the March Monthly CPI Indicator which will take the annual pace down to 3.2%yr from 3.4%yr, the slowest pace since November 2021.
- Using the data from the February Monthly CPI Indicator and updating the partial indicators for our March Monthly Indicator estimate our forecast for the March quarter CPI lifted from 0.7% to 0.8%. This is a rounded down estimate and the momentum in the components suggests the risk to this estimate lies to the upside.
- As we only have two of the three months of the quarter from the Monthly CPI Indicator there is still the possibility of a surprising result in both the monthly and quarterly prints.
- The above estimates remain consistent with our current forecast for the CPI to be at a 3.0%yr pace by end 2024.
Food prices rises 1.0% contributing 0.16ppt
From the Monthly CPI Indicator, we have a quarterly estimate on restaurant & takeaway meals (from February) which feeds directly into our quarterly forecast. We also have two monthly estimates for all other components of food & non-alcoholic beverages (January & February).
From the Monthly CPI data, we add partial indicators from wholesale prices for fruit & vegetables, beef, lamb and milk to drive a March Monthly CPI Indicator estimate, from which we calculate a quarterly average for the March quarter CPI.
Alcohol & tobacco rises 0.7% contributing 0.05ppt
Alcohol and tobacco are survey monthly, so we have two of the three months of the quarter. We have estimated a monthly change for March Monthly CPI Indicator, from which we calculate a quarterly average.
Clothing & footwear falls –1.3% contributing –0.04ppt
Except for men and women garments, clothing and footwear prices are surveyed once a quarter n the first month of each quarter. As such, we have taken those estimates across to the quarterly CPI. For men and women garments, we have made an estimate for the remaining month of data (March) and then estimated its quarterly average change.
Housing rises 0.6% contributing 0.14ppt
Rents, dwellings, electricity and gas prices are surveyed monthly, so we have two months of data and only have to estimate the March monthly print. Of note rents have continued a very robust trend around 0.7% to 0.8% per month and the only reason we are forecasting a step down to 0.5%mth in March is due the indexation of Commonwealth Government Rental Assistance. Dwelling prices lifted 0.3% in February, and we are looking for a similar rise in March.
Electricity prices have been held down by the various government rebates (both federal and state). The fall in February was due to the introduction of the second instalment of Energy Bill Relief Fund rebates for concession household in Victoria. We have pencilled in a –0.5% fall in March but note this is more about delayed payments being processed as the next round of rebates in NSW, ACT, Qld and SA are not due until April, so it is possible that electricity prices bounce in March due to less rebates offsetting power bills.
Maintenance & repairs of dwellings are surveyed once a quarter in the first month of each quarter, so we have brought the January Monthly CPI Indicator estimate across to the March quarter CPI.
Household contents & services fall –0.3% contributing –0.03ppt
Furniture & furnishings, household textiles and household appliances are surveyed once a quarter in the first month of each quarter, so the estimates from the January Monthly CPI Indicator have been imputed into the March quarter CPI.
Hairdressing & personal grooming services and other household services are surveyed once a quarter in the second month of each quarter, so the estimates from the February Monthly CPI Indicator have been imputed into the March quarter CPI.
Childcare is surveyed once a quarter in the third month of each quarter, and so we have a 2.0% forecast for both the month of March and the quarter.
Non-durable household products are surveyed monthly so we have taken the January and February Monthly CPI Indicator estimates, added in a March forecast and calculated a quarterly average for the March quarter.
Health rises 2.4% contributing 0.15ppt
Health costs are surveyed in the third month the quarter so we have no guidance from the Monthly CPI Indicator. However, we do know that March will see an increase in health insurance premiums on par with what we saw in March 2023. At the start of each year, household threshold spending caps for the Pharmaceutical Benefits Scheme resets to zero so there is a jump in pharmaceutical prices as household are yet to access those rebates.
Transport rises just 0.1% contributing 0.01ppt
While auto fuel prices rose 5.1% in February and set to rise a further 1.7% in March, the –2.9% fall in October, –5.5% fall in December and then a –0.9% fall in January means auto fuel will fall –1.0% in the March quarter (in quarterly average terms). As the supply of automobiles improve, we are looking for a further –0.6% fall in car prices in the March quarter.
Recreation rises 0.1% contributing 0.01ppt
There has been a correction to holiday travel prices, both domestic and international, that along with a Westpac estimate for the March Monthly CPI Indicator, will see this group fall –1.4% in the March quarter. Audio visual & computing services, equipment for sports, games, toys & hobbies, sports participation, and other recreation & cultural services are surveyed in the second month of the quarter so the February Monthly CPI Indicator estimates have been imputed into the March quarter CPI. We have an estimate for the March quarter estimates for books, newspapers, and veterinary & pet services.
Education rises 5.9% contributing 0.25ppt
Education was surveyed in February to pick up price resetting as the education year starts in Australia. We have taken the estimates from the February Monthly CPI Indicator and imputed them into the quarterly CPI.
Finance & insurance lifts 1.4% contributing 0.08ppt
Insurance is surveyed in the mid-month of the quarter, so we have taken February Monthly CPI Indicator estimate and imputed it into the March quarter CPI. Deposit & loan charges are surveyed monthly, so we have made a March estimate to calculate a quarterly average for the March quarter while other financial services are surveyed in the last month of the quarter, so we have no guide to work here with.
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